Computing and Interpreting Key Ratios Assume the data presented below are from t

Question

Computing and Interpreting Key Ratios

Assume the data presented below are from the financial statements of JetBlue and Southwest Airlines.

Required a. Compute the return on equity ratio for JetBlue and Southwest for 2013. (Round your answer to one decimal place.)

JetBlue Airways ___ %

Southwest Airlines ____%

Which company earned the higher return for its shareholders?

Southwest Airlines or Jet Blue Airways

b. Compute the debt-to-equity ratio for each company as of December 31, 2013. (Round your answer to one decimal place.)

JetBlue Airways ____

Southwest Airlines ____

Which company relies more on creditor financing?

Southwest Airlines or Jet Blue Airways

c. For each firm, compute net income as a percentage of revenue in 2013. (Round your answer to one decimal place.)

JetBlue Airways _____%

Southwest Airlines _____%

($ millions) Jet Blue
Airways Southwest
Airlines Total Liabilities, 2013 $4,939 $9,226 Total Liabilities, 2012 5,003 8,815 Total Assets, 2013 6,593 15,463 Total Assets, 2012 6,549 14,269 Revenue, 2013 3,779 12,104 Net Income, 2013 97 459

Explanation / Answer

a) Return on equity ratio Net income/Equity ROE Jet blue airways 97/(6593-4939) 5.9% Southwest airlines 459/(15463-9226) 7.4% Southwest airlines has earned higher return for its shareholders b) Debt to equity ratio Debt/equity ratio Jet blue airways 4939/(6593-4939) 299% Southwest airlines 9226/(15463-9226) 148% jet blue airways relies more on creditor financing c) net income as a percentage of revenue Net income/revenue ratio Jet blue airways 97/3779 2.6% Southwest airlines 459/12104 3.8% Southwest airlines earned higher returns for its shareholders

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